Sorry Libertarians, But This "Buyer Beware" Nonsense Is A Pitiful Defense Of Goldman Sachs

Goldman is trying to diffuse
the increasingly harsh light being turned on its dubious
practices in the collateralized debt obligation market, with the
wattage turned up considerably last week by a
story in the New York Times that described how a synthetic
CDO program called Abacus was the means by which Goldman famously
went “net short” subprime. We’ve mentioned Abacus repeatedly
because AIG wrote guarantees on at least some of the Abacus
trades.

One of the things that has been frustrating in watching this
debate is the peculiar propensity of quite a few observers to
defend Goldman and its brethren, and to argue, effectively,
caveat emptor. Contrary to the fantasies of libertarians, that is
not in fact how markets, particularly securities markets,
operate. In virtually every market in the world, when someone
represents his wares as being sound and safe and they turn out to
be “bad” and dangerous, the seller is considered to have some
responsibility for the damage. Remember those Pintos that turned
into fireballs when rear-ended? The pets that died from pet food
laced with melamine from China? No one suggested that the buyers
of those products were at fault.